City Research Online

Abstract

This paper analyses the distortions that banks' cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provides support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article accepted for publication in 'Economic Policy' following peer review. The version of record Beck, T., Todorov, R. & Wagner, W. (2014). Supervising cross-border banks: theory, evidence and policy. Economic Policy, 28(73), pp. 5-44. is available online at: https://doi.org/10.1111/1468-0327.12001
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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